The “automatic stay” immediately stops most collection actions by most creditors when you file bankruptcy. But here are some key exceptions.
The Automatic Stay
This protection against collection is automatic because it becomes effective simply by your act of filing bankruptcy. You don’t need any further steps by the bankruptcy court for it to be binding on your creditors.
If you need to stop a lawsuit from turning into a judgment, filing bankruptcy imposes the automatic stay and prevents that judgment from being entered. Same with the foreclosure of a home, repossession of a vehicle, garnishment of a paycheck, and virtually all collection actions.
Because the automatic stay is such a crucial benefit to a person filing bankruptcy, it’s important to know its exceptions. You need to know those relatively unusual situations when a creditor CAN continue to act regardless of your bankruptcy filing.
Kinds of Exceptions
There are three different kinds of exceptions to the automatic stay:
- Motions for “relief from stay”: Creditors can ask the court for permission to resume collection activity in various circumstances. See the last five blog posts for information about these creditor motions.
- “Abusive filings”: A prior very recently filed a bankruptcy case, subsequently dismissed, can result in the loss of the automatic stay. More than one recently filed and dismissed case can result in the lack of the automatic stay protection all together. We’ll cover these in an upcoming blog post.
- Certain kinds of creditor actions, done by very specific kinds of creditors, are simply not covered by the automatic stay. We cover this today and in our next blog post.
Certain Actions by Specific Kinds of Creditors
Bankruptcy’s automatic stay does not apply to 1) criminal matters, 2) certain family court proceedings, 3) child and spousal support obligations, and 4) certain income and business tax collection procedures.
1. Criminal Matters:
Bankruptcy does not prevent a district attorney or other governmental authority from starting or continuing a criminal case against you. That includes any step of a criminal case: arrest, indictment, plea bargaining, trial, sentencing, appeal, and incarceration. The automatic stay simply does not apply to criminal matters.
Caution: this exception doesn’t just apply to felonies and misdemeanors. It may apply to much more commonplace matters that you might not consider “criminal,” such as certain traffic infractions and their related court proceedings and fines.
This can get genuinely confusing because the line between criminal and civil proceedings can get blurred. Consider someone getting into a fight in a bar and causing bodily injury to the other person. Any resulting criminal charges would not be affected by a bankruptcy filing. But a lawsuit for civil damages would be.
Be sure to tell your bankruptcy lawyer about any potential criminal charges and related civil claims you may be facing. Then the two of you can be sort out what proceedings would and would not be stopped by your bankruptcy.
We’ll cover the 3 remaining specific-creditor exceptions to the automatic stay in our next blog post.